A Virgin Galactic passenger spaceship exploded during a test flight on Friday at the Mojave Air and Space Port, killing one pilot and severely injuring another.
The spaceship, which was undergoing its first powered test flight since January, suffered an "anomaly" soon after takeoff, officials said.
The craft's co-pilot was killed, and the pilot suffered major injuries and was taken to a hospital, local officials said. Kevin Mickey, president of Scaled Composites, confirmed both pilots were employed by his company—the firm was conducting the launch in partnership with Virgin.
Mickey said the National Transportation Safety Board is expected to arrive Saturday morning, at which point investigators will establish a plan. The investigation, he added, is expected to take "several days."
Despite the fatal turn, officials urged that the incident not derail the future for the space flight industry.
"Stay the course, this business is worthy business, this is not easy," Stuart Witt, the chief executive of the Mojave Air and Space Port, said at a media conference. "To the new people involved with this, get involved, be inquisitive, challenge, don't be afraid to ask the tough questions. We're doing this for you, and for your generation ... It's a cause far greater than any one of us singularly.
"Space is hard, and today was a tough day," said George Whitesides, CEO and President of Virgin Galactic. "The future rests in many ways on hard, hard days like this, but we believe we owe it to the folks who were flying these vehicles ... to understand this and to move forward, which is what we'll do."
Still, Witt said, the space flight community suffered a painful loss on Friday.
"When we have a mishap from the test community, we find the test community is very small, and we are human, and it hurts," Witt said.
The NTSB told CNBC it is monitoring the crash, and are working to gather details.
"Just after 10 a.m. PDT today, ground controllers at the Mojave Spaceport lost contact with SpaceShipTwo, an experimental space flight vehicle. The incident occurred over the Mojave Desert shortly after the space flight vehicle separated from WhiteKnightTwo, the vehicle that carried it aloft," the Federal Aviation Administration wrote in a statement. "Two crew members were on board SpaceShipTwo at the time of the incident. WhiteKnightTwo remained airborne after the incident. The FAA is investigating."
NBC reported that SpaceShipTwo sat on the Mojave runway for over three hours as the ground team assessed the weather conditions.
More than 800 people have paid or put down deposits to fly aboard the spaceship, which is carried to an altitude of about 45,000 feet and released. The spaceship then fires its rocket motor to catapult it to about 62 miles (100 km) above Earth, giving passengers a view of the planet set against the blackness of space and a few minutes of weightlessness.
Read MoreRichard Branson's vision for NY to Tokyo in 1 hour
"This puts everything back to the drawing board, it takes a lot of stuff off the table, R&D's got to go up from here," said Stuart Frankel's Steve Grasso. "There's a lot of people that lined up to do this that are just going to back away, and a lot of dollars are going to come off the table."
The spaceship is based on a prototype, called SpaceShipOne, which 10 years ago won the $10 million Ansari X Prize for the first privately developed manned spacecraft to fly in space.
Friday's test was to be the spaceship's first powered test flight since January. In May, Virgin Galactic and spaceship developer Scaled Composites, a subsidiary of Northrop Grumman, switched to an alternative plastic-type of fuel grain for the hybrid rocket motor.
"Space flight will bite you if you don't pay full attention, and when we had our shuttle disasters, they weren't accidents, they were based on mistakes," said James Oberg, a former NASA mission controller. "So they're going to figure out by looking at the investigation now, what was it that they just had overlooked. Even though we all knew it's hard and we all knew they were having trouble with their engine, so this might be a result of that."
The accident is the second this week for a U.S. space company. On Tuesday, an Orbital Sciences Antares rocket exploded 15 seconds after liftoff from Wallops Island, Virginia, destroying a cargo ship bound for the International Space Station.
"It hasn't been an easy week. It's certainly been a challenge, but from where I'm from, this is where you find out your true character," Witt said.
The crash is a major setback for Virgin Galactic, a U.S. offshoot of billionaire Branson's London-based Virgin Group. SpaceShipTwo, a six-passenger, two-pilot spacecraft is aiming to make the world's first commercial suborbital space flights.
Read MoreDespite explosion, Orbital maintains 2014 outlook
Other companies developing passenger suborbital spacecraft include privately owned XCOR Aerospace, which is building a two-person spaceplane called Lynx, and Blue Origin, a start-up space company owned by Amazon founder Jeff Bezos.
Virgin Galactic also plans to use its White Knight Two carrier jets to launch small satellites and payloads into orbit.
—NBC's Alan Boyle and Reuters contributed to this report.